How you can cut energy costs through the Inflation Reduction Act

Lisa M. Krieger, The Mercury News on

Published in Business News

The Inflation Reduction Act signed by President Biden this week aims to shift America toward a greener future by lowering the cost of electric vehicles, energy-efficient appliances and rooftop solar panels.

Many consumers will benefit. But it’s complicated — because limitations apply. You will get breaks, but most will come at tax time.

For instance, the Model Y is the only Tesla that will qualify for the next $7,500 tax credit. Why? Because the other models cost too much. Or the batteries that run the electric vehicles come from China. And there are income thresholds to qualify for the tax break.

The legislation is 730 pages of dense legalese. Many details are yet to be finalized.

We extracted the information that will be most helpful to people seeking to make climate-friendly purchases.

Electric vehicles


Buyers of new electric, plug-in hybrids and hydrogen fuel-cell vehicles will get a tax credit worth up to $7,500, depending on the battery. A rebate of $3,750 will be paid if at least 50% of battery components are produced in the U.S. or Free Trade Agreement countries, and an additional $3,750 will be paid if at least 40% of battery minerals originate in the U.S. or FTA countries. Starting in 2024, consumers can take that tax credit as a point-of-sale rebate at the dealership.

But only vehicles that cost below a certain amount will qualify. According to Kelley Blue Book, the average sticker price for a new electric vehicle in June was about $67,000 — but the new tax credit is limited to sedans, hatchbacks, wagons and other vehicles that cost less than $55,000. That rules out pricier EVs such as the Tesla Model S, BMW i4, BMW i7 or BMW iX and Hummers. For SUVs, pickup trucks and vans, the price threshold is higher, at $80,000 to get the tax break.

And there’s another wrinkle. Starting Aug. 16, the day the bill was signed, the old EV tax credit went away, and only vehicles assembled in North America are eligible for the new tax credit. That eliminates electric cars such as the BMW i4, Hyundai Ioniq 5, Kia EV6 and Kia Niro Electric, Toyota bZ4x and Toyota Mirai and Subaru Solterra. How do you learn if an electric vehicle’s final assembly occurred in North America? Enter the 17-character Vehicle Identification Number (VIN) into the National Highway Traffic Safety Administration’s VIN Decoder tool:

Car buyers must meet certain income guidelines. Households with an adjusted gross income up to $300,000 will qualify for the credit. Heads of household must earn below $225,000. Individuals will qualify only with income below $150,000.


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